AK has been an analyst at long/short equity investment firms, global macro funds, and corporate economics departments. He co-founded Macro Ops and is the host of Fallible.
Check out Macro Ops’ value investing article here: https://bit.ly/2P2tDQ9
Value investing hasn’t performed so well this cycle. Is the strategy dead? We’ll find out in this video!
The value-factor strategy pioneered by Fama and French, which consists of buying stocks with the lowest valuations and selling those with the highest has produced a cumulative loss of 15% over the past decade, according to Goldman Sachs. This is the longest stretch of underperformance for the value-factor strategy since the Great Depression. And as to be expected, this prolonged drudgery has spawned the hyperbolic “Death of Value Investing” narrative that seems to come around at some point every other cycle.
What I find interesting though is that this “death of value” narrative doesn’t seem to be affecting the value fund managers I talk to. They mustn’t have gotten the memo because they seem to be doing just fine — actually, much better than fine with most of them beating the market by a wide margin this cycle.
Which of course begs the question: why the large performance gap between what’s considered classical value (ie, the Famma-French method of buying statistically cheap stocks) and select discretionary value fund managers who’ve been hitting it out of the park?
The answer is two-fold. One reason is because a lot of the information edge Ben Graham used to have has been eaten away. The other is because we’re in an asset light economy.
Are you a value investor? What do you think about this shift? Let me know in the comments!
To learn more, make sure you watch the video above!
And as always, stay Fallible out there investors!